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Feds sue ITT Educational over loan practices

Christie Smythe, Bloomberg News
12:36 p.m. EST February 27, 2014

ITT Educational Services Inc. is being sued by the U.S. Consumer Financial Protection Bureau, which accuses it of encouraging students to take out loans that the company knew they would have to struggle to repay. A spokesman for ITT said the bureau’s claims “are without merit.” This is a photo of the company’s headquarters at 13000 N. Meridian St. in Carmel.(Photo: Joe Vitti)

ITT Educational Services Inc. was sued by the U.S. Consumer Financial Protection Bureau over claims the for-profit college chain engaged in predatory lending by encouraging students to take loans they would struggle to repay.

ITT misled students by overstating their job prospects and potential salaries and then pushed them into high-cost private loans that were likely to end in default, Richard Cordray, the agency’s director, said Wednesday after the agency filed a lawsuit in federal court in Indianapolis.

“Corporations that own these colleges often seem to care more about dollar signs than diplomas,” Cordray said at a news conference in Washington, D.C.

Cordray has vowed to focus on the private student loan industry.

The CFPB, created in 2011 to regulate financial products, is working with at least 12 state attorneys general to investigate student debt, which has reached about $1.2 trillion nationwide and affects many for-profit colleges.

The agency sued Carmel, Ind.-based ITT under the U.S. Consumer Financial Protection Act of 2010 and the Truth in Lending Act.

ITT’s tuition is among the nation’s highest among for-profit colleges with an associate’s degree costing as much as $44,000 and a bachelor’s degree $88,000, the agency said. While students can use federal loan programs for education costs, many students still require private loans to fill the gap, according to the CFPB.

Students were encouraged to use private loans to repay temporary loans offered through the college chain, and students were “left in the dark about the fact that taking out these high-cost loans would be required to continue their studies,” the agency said in a statement.

The college chain targets low-income consumers who “can rarely afford to pay its high tuition out-of-pocket,” the agency said in its complaint filed in court in Indianapolis. “Therefore, ITT’s business model relies on convincing these consumers to obtain federal aid, mostly loans, to pay ITT.”

Nicole Elam, a spokeswoman for ITT, said the college chain doesn’t comment on pending litigation “other than to say that we believe the bureau’s claims are without merit and that we intend to vigorously defend ourselves against the charges.”